Dicky Leonardo Lois

008201400027

14-7
Describe two or more factors that the
auditor should consider in assessing
the inherent risk for
(a) intangible assets and
(b) the property management process

14-7
a) Inherent risks factors that should be
considered when assessing inherent risks for
intangible assets are :
- Jugments for valuation of intangible
assets & determining useful lives
(complex accounting rules & transactions
difficult to audit)
- Estimation uncertainty when doing
intangible assets impairment tests
(Higher estimation uncertainty, higher risk)

14-7 (cont)
b) Inherent risks factors that should be considered
when assessing inherent risks for property
management process are :
- Complex accounting issues
(e.g : lease accounting, self-constructed
assets and capitalized assets)
- Difficult-to-audit transactions
(e.g : donated assets, non-monetary
exhanges & self-constructed assets)
- Mistatements detected in prior audits
(if prior audits detected misstatements, higher
risk)

14-11
What procedures would an auditor
use to verify the completeness,
rights, and obligations, and valuation
assertions for property, plant, and
equipment?

14-11 Ans.
The following audit procedures can be used to verify
the completeness, right and obligations, and
valuation assertions:
Completeness: Physically examine a sample of
capital assets and trace them into the property,
plant and equipment subsidiary ledger.
Rights and Obligations: Examine or confirm deeds
or title documents as the proof of ownership.
Valuation: Vouch additions and dispositions to
vendor invoices or other supporting documentation.
Test depreciation calculations for a sample of capital
assets.

14-15
a)
Property, plant and equipment normally include only fixed
tangible assets. Fixed tangible assets are capital assets
with useful lives generally in excess of one year that are
used in the operation of the business and that are not
purchased for resale purposes. In the examination of
property, plant and equipment (PP&E), the auditor must be
satisfied that:
Assets included in PP&E exist and are being used in
the normal operations of the business.
Internal controls over PP&E and PP&E acquisitions are
adequate.
Assets included in PP&E are not encumbered by liens
or, if so, the facts are properly disclosed in the notes to
the financial statements.
Assets included in PP&E are owned by the company

14-15 (cont)
Depreciation and/or amortization methods are
proper.
Accounting for additions, disposals and
retirements is proper.
Amounts in the financial statements are in
substantial agreement with the supporting records.
Maintenance accounts do not include items that
should be capitalized.
The valuation and the disclosure of the method
of evaluation are acceptable.
Important information relating to the assets is
properly disclosed.

14-15 (cont)
b)

Item
Number

Is
Reasons Why Audit Adjustments or
Auditing Reclassifications Are Required or
Adjustm Not Required
ent or
Reclassi
fication
Require
d ? (Yes
or No)

Yes

Commissions paid to real estate agents

are costs directly related to the
acquisition of the property and should
be included in the land cost. The costs
of removing, relocating or
reconstructing property of others to
acquire possessions are costs that are
directly attributable to conditioning the
property for use and should be
included in land costs. An adjustment
is required for these items, so that total

14-15 (cont)

No

Yes

No adjustment is
required because
clearing costs are
costs that are directly
attributable to
conditioning the
property for use and
should be included in
land costs, which are
part of property, plant
and equipment.
Since clearing costs
are costs of the land,
amounts realized
from the sale of
materials recovered,
such as timber and
gravel, should be a
reduction of the cost

14-15 (cont)

Yes

All costs relating to

the purchase of
machinery and
equipment should be
capitalized. For
purchased items such
costs would include
invoice price, freight
costs and unloading
charges. Royalty
payments, however,
should not be
included in the cost of
the machinery. Such
payments should be
charged to expenses
as they accrue.
Machinery costs,
other than royalty
payments, should be